Good morning,
This week has been a whirlwind, and I’ve missed writing these morning updates. There’s a centering, meditative aspect to it that I probably need in my life. And yet, as we prepare to reopen our business under an entirely new business model, I have a hard time imagining how I’ll ever be able to carve out the time to write to you all this summer. Nonetheless, when big things happen that are of critical importance to my readers, I’ll find some time. That’s what brings me here this morning.
Yesterday, the Senate finally passed critically needed reforms to the PPP. There’s also lots to say, none of it good, about what’s going on with unemployment claims right now. I provide some updates on both of these developments below.
The information below is accurate to the best of my understanding as of 7:00 am this morning.
Senate Passes PPP Reform Bill, Bringing Relief to Small Businesses
Yesterday, the U.S. Senate passed H.R. 7010, the “Paycheck Protection Program Flexibility Act of 2020.” The bill had passed the House last week so it now heads to the President’s desk for signature and is expected to become law shortly. This law will alleviate many of the pain points that have made the PPP a bad fit for helping many small businesses, particularly those in the hospitality and tourism realm that are either still closed or barely reopened due to COVID safety restrictions.
The law contains no new funds for PPP loans. There are still some funds available now, but with this increased flexibility, I would expect that a flood of new applications from businesses that had been on the fence about whether the PPP could help them. The remaining funds will likely be depleted within days if not hours, so if you’ve been thinking about applying, make sure you get your application completed today. The best way to apply is by contacting a local bank or credit union.
Here are the key changes that the law will make to the terms of all PPP loans:
Extend the covered period for potentially forgivable expenses from 8 weeks to 24 weeks. This means that a business can use its PPP funds to cover payroll costs for a much longer period of time, extending into the timeframe when it is able to reopen its doors and bring back more employees.
Increase the non-payroll portion of potentially forgivable expenses from 25% to 40% of the loan amount. This means that over the 24 weeks period following disbursement of the loan, the business can use up to 40% of the funds to pay for rent, utilities, and interest on pre-existing debt.
Extend the deadline for eliminating a reduction in salaries or employee count in order to qualify for full forgiveness from June 30 to December 31. As originally passed, the PPP included a June 30 “savings clause” that allowed businesses that had cut wages or furloughed employees to still qualify for full forgiveness if they could get back to full strength by June 30. With COVID reopening timelines making that impossible for many businesses, this bill extends the deadlines for restoring full employment to December 31.
Create an additional safe harbor for full forgiveness for businesses unable to return to the same level of business activity due to compliance with federal requirements or guidance related to COVID-19. We’ll have to wait and see what the regulations say about how this clause should be interpreted, but it could be incredibly important for restaurants and other hospitality businesses who may see their occupancy limits severely restricted for months to come. Such businesses may now have a pathway to full forgiveness, even if they are not able to rehire the same number of employees they had before the shutdown.
Establish a minimum maturity of five years for a PPP loan with any remaining balance after forgiveness. Although the original CARES Act had set the maximum maturity for a PPP loan at 10 years, Treasury quickly issued a rule that all PPP amounts not forgiven would have to be paid back in just two years. That short window for repayment was part of what made some small businesses decide forgo the PPP entirely. Now Congress has set the minimum payback period at five years, which provides a much more reasonable period for paying back any unforgiven amounts.
Extend the deferral period for making payments on unforgiven portions of PPP loans until after forgiveness has been determined. Previously, businesses were required to start making payments on their unforgiven amounts six months after loan origination. Now, businesses will have a minimum of ten months after the end of their 24 week period to apply for forgiveness and no payments are required until forgiveness is determined.
Allow PPP recipients to defer payroll tax payments into 2021 and 2022. In a less publicized portion of the CARES Act, Congress permitted employers to elect to defer their payroll tax payments from 2020, with half of the deferred amount due on December 31, 2021 and half due on December 21, 2022. However, it indicated that PPP recipients were disqualified from such deferral, at least after their PPP forgiveness had been determined. Now, all employers will be able to take advantage of the deferral of these expenses. An important note though: the deferral is not automatic. If you would like to defer these expenses, you must contact your payroll processor and let them know.
This is a lot of much needed change to the PPP program. Many details about the new forgiveness process and how it will be implemented will have to be determined in yet another round of Treasury Department regulations. But this bill represents an enormous step in the right direction for truly helping Maine’s small businesses.
Unemployment Woes Continue, New Processes Announced
About a month ago, the Department of Labor finally set up a process for legislators like me to be able to flag unemployment cases that were stuck in one way or another so that we could help get them unstuck. For about a week, the system seemed to work well and I was able to assist several Mainers in getting their claims unstuck. The requests for help kept coming in and we continued the flagging process, but the good news of those claims being resolved tapered off and then disappeared entirely. As of last week, I decided to stop telling constituents that I could help flag their claim because it had become evident to me that our process was not working. I had to go back to advising folks to call the DOL 800 number and hope they got through.
This morning, we were alerted that the DOL has committed several experienced staff members to working on these elevated claims and communicating back to us more effectively when they are resolved. If you have already contacted me about your claim, then you’re already on our list and already in the queue for this new process. I will go back through my emails from last week and make sure we have not missed anyone. We have our fingers crossed that the new dedicated manpower will help bring actual resolution to the flagged cases. I will update you all here to let you know if it does, but I expect it may still be a week or more for many, as the list for resolution is quite long already. If you want to be added to the list, you may send me an email.
Identity Verification Process Established by DOL Relies on Unsecure Email System
This week, it became clear that a large number of legitimate unemployment claims had been incorrectly flagged as fraudulent as the DOL conducted its review in the wake of the identity theft fraud that struck the system this month. DOL has established a process for claimants whose claims have been canceled or payment delayed to submit identity verification documentation via email. Click the link to their website for details on the process. I will be pushing today for DOL to replace this email process with a secure portal for uploading documents, as I think it is crazy to ask for such information to be sent via unencrypted email. However, the email process is what is in place today. For now, you must individually weigh the risks of sending such personal information via email against your own need for a swift reinstatement of your claim. I am hopeful that such a terrible calculation won’t have be made for long, and I will post updates if and when a more secure portal becomes available.
Legislators Will Hold Oversight Hearing Today, Calling on DOL to Explain Unemployment Process Failures
The Maine Legislature’s Joint Standing Committee on Labor and Housing will convene at 10 am this morning. The legislators on the committee are expected to question a representative from the Department of Labor about the various issues related to unemployment that continue to cause delays in Mainers receiving the state and federal benefits that they are entitled to. You can stream the hearing here.
Be well.
With love,
Heather